Eva Deschamps / November 12, 2022
U.S.-based FTX, one of the leading cryptocurrency exchange platforms, announced Friday that it was filing for bankruptcy and resigning its boss and founder, who until now has been considered to be behind one of the biggest success stories in the cryptocurrency world.
In a statement posted on Twitter, the company announced that its founder, 30-year-old Sam Bankman-Fried, until now a multi-billionaire, had resigned and that the group was invoking bankruptcy law.
In turmoil for the past week, FTX has voluntarily filed for U.S. bankruptcy protection, the latest episode in the lightning rout of a major player in the lightly regulated cryptocurrency sector.
FTX Trading … and approximately 130 FTX Group affiliates have begun the voluntary Chapter 11 process” to “value and monetize [their] assets,” the company announced on its Twitter account. The system allows a company to restructure its debts under court supervision while continuing operations.
In a tweet, FTX’s founder apologized. Sam Bankman-Fried, known as “SBF,” has been replaced by John J. Ray III, and “will stay on to help with a proper transition.”
The FTX debacle has stunned the cryptocurrency world: just over a week ago, the group was considered the second largest cryptocurrency platform in the world, and “SBF” the go-to guy for regulators around the world. The group was valued at some US$32 billion.
But, according to US media reports, “SBF’s” fortune of some 16 billion evaporated within days.
The discomfiture came to light when news reports revealed that its Alameda Research fund was investing in cryptoassets issued by FTX.com
in a risky financial arrangement that may reveal major conflicts of interest. “We don’t know what happened, but it looks like there was a lot of bad behavior,” Howard Fischer, a former lawyer for the Securities Exchange Commission (SEC), the U.S. stock market watchdog, commented to CNBC on Friday, decrying a lack of transparency. He predicted that clients would also sue to recover their investments.
The group is under investigation by the Securities Exchange Commission and the New York Department of Justice, according to the New York Times, citing sources close to the investigation.
“I can’t comment on any possible investigation,” SEC Chairman Gary Gensler told CNBC on Thursday. Since taking over as head of the stock market authorities, the SEC boss has pushed for more transparency in the cryptoasset sector. “When you mix customer money, a lack of transparency, borrowing against that money and brokerage, investors pay the price,” he warned while being asked about the issue.
Kevin O’Leary, chairman of a venture capital firm and TV personality who had invested in FTX, was making a strong case on Friday for more safeguards and regulation in the sector: “It’s time to put rules in place. We’re now hitting rock bottom in the crypto market as a major player has been reduced to zero.”
“I’ve lost money, but I’m still going to invest in this sector,” he claimed to CNBC.
FTX’s woes were also accentuated by industry leader Binance, which announced it was selling a cryptocurrency linked to FTX Group on Sunday, then offered to buy FTX.com
on Tuesday before retracting its offer on Wednesday.
The heightened instability in the sector sent cryptocurrencies plunging on the week, with bitcoin losing 5.8 percent on Friday to US$16,784, the lowest since November 2020. Ether, another virtual currency, was also dropping more than 5 percent to US$1,940.